Customer Acquisition Cost

What Does Customer Acquisition Cost Mean?

Customer acquisition cost is the cost incurred by an organization while convincing a customer to buy a service or a product. In
other words, it is the cost of resources for the business in order to acquire a new customer.
Customer acquisition cost involves research, marketing and accessibility costs.
Customer acquisition cost is an important business metric which helps organizations
to determine the amount of resources that can be profitably spent on a specific customer.

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Customer acquisition cost is also known simply as acquisition cost.

Techopedia Explains Customer Acquisition Cost

Customer acquisition cost is usually expressed as a ratio between the sum total of customer acquisition cost and the number of customers/patrons acquired by the company as part of the customer acquisition strategy. It usually increases as the business or organization matures. When the diminishing return on customer acquisition cost starts, most businesses or organizations adopt different strategies for customer acquisitions. Expenses related to customer relations management & marketing automation, software licenses, sponsorships, content production & management, website & social media and gifts to customers all comprise customer acquisition cost. Companies often use the latest technology and innovations in
social media as part of their marketing campaigns, and sophisticated software can be used in determining customer acquisition cost.

Often, customer acquisition costs are higher
for companies which are selling a single product compared to ones who are selling
multiple products. Customer acquisition costs are higher in the case of retailers
using only a single channel compared to ones who are using multiple channels.
Organizations can also change their marketing strategies and technology in
order to lower the customer acquisition cost.

There are many benefits associated with the business metrics of customer acquisition cost. The most important benefits of customer acquisition cost is to help companies measure and help in planning and strategizing future capital allocations. Customer acquisition cost can help businesses to understand the worth of the customer to the company. It also helps in calculating the value of the customer to the company and return on investment of acquisition. Customer acquisition cost can help organizations to strategize the resource allocation in order to acquire a new customer. It also provides a more realistic picture to the costs incurred on the company’s financial statements.

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Margaret Rouse
Technology Expert

Margaret is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical business audience. Over the past twenty years, her IT definitions have been published by Que in an encyclopedia of technology terms and cited in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine, and Discovery Magazine. She joined Techopedia in 2011. Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages.